NAB now predicts an average house price fall of 1.8 per cent across the capital cities this year, with a 0.1 per cent slip to follow in 2019. Unit prices are expected to drop 1.7 per cent in 2018 and 2.2 per cent in 2019.

Previously, the bank had predicted prices to see a shallower fall this year and a minor recovery in 2019.

House prices in Sydney are expected to drop 3.7 per cent this year, according to NAB, while unit’s values will slip 1.6 per cent. Melbourne houses are now seen to likely fall 2.3 per cent this year, while units give up 1.4 per cent.

Hobart houses are expected to strongly outperform with an 8.4 per cent rise in 2018.

The bank expects house prices to flatten in 2020, implying a peak-to-trough fall of 6.5 per cent and 2.5 per cent in Sydney and Melbourne, respectively.

Last month ANZ cut deeply into its property forecasts and now predicts a 10 per cent peak-to-trough fall in both Sydney and Melbourne.

“But any further tightening in lending standards or additional changes to government or prudential policy to address affordability or financial stability concerns are likely to have an impact on these forecasts” Mr Oster said.

House price declines, and concerns over the impact of regulatory changes to the banking sector, have pulled confidence levels into the red.

“Overall confidence levels fell to a new survey low, driven down mainly by NSW and Victoria where capital city house prices declined,” according to Mr Oster.

House prices set for a ‘sustained decline’: ANZ

Meanwhile, ANZ also offered a sombre view on residential property prices on Thursday, with the results of its own sentiment survey showing nationwide falls.

“The survey results support our view that house prices are set for a sustained decline,” ANZ head of Australian economics David Plank wrote.

“The decline in credit availability recorded by this survey in 2015 proved to be a good leading indicator of the subsequent fall in building approvals. We think it will prove so again, meaning that a steep fall in building approvals is likely over the coming 6–12 months.”

Concerns around a drying up of mortgage credit in Australia were softened on Wednesday this week when APRA chair Wayne Byres said the regulatory reform “heavy lifting” had now been done.

“The changes in lending practices to date do not seem to have had an obvious impact on housing credit flows in aggregate,” Mr Byres told an Australian Business Economists briefing on Wednesday.

“Credit growth appears to be slowing somewhat at the moment, but that is not surprising in an environment of softening house prices and rising interest rates.”